Attracting investors is the key challenge now
Tuesday, 20 April 2010
Moazzem Hossain
Attracting investment is Bangladesh's major economic challenge today. This is an opportune moment for Bangladesh to take effective actions for investment promotion. Two global rating agencies have made a positive assessment of the country's overall economic situation. At this stage, it is important to make the best use of the opportunities awaiting Bangladesh for its accelerated growth. A synergy of actions will be needed to facilitate increased private investment, both local and foreign. And investment does undeniably hold the key to sustained growth at an accelerated pace, higher incomes, increased employment opportunities and, thus, poverty alleviation.
In this context, the policy-makers should take a hard look, objectively and dispassionately, at the constraints to making investments, particularly in main sectors of the Bangladesh economy. Its capital-market and the property market are otherwise heated up; the banks are flush with funds. These developments indicate that the dearth of investible funds for setting up, at least, small and medium ventures is not a severe problem now as it was before. What matters most for facilitating investments in such areas is setting the basics right through appropriate and timely policy actions. Meanwhile, it is also time for Bangladesh to make the best use of the opportunities particularly for attracting foreign direct investment, in the light of the new global realities. But such opportunities can be seized only if there is a synergy of actions to address the challenges that Bangladesh faces. The opportunities are, no doubt, immense. But the challenges are equally formidable.
We all know where such challenges lie. Infrastructural constraints come here on the top of all. Inadequacies of power and gas supplies are hurting the economy most. In a situation where the existing economic operators find it difficult to run their enterprises at capacity, it would be a pious wish to expect new investors to put in their funds in new ventures. This particular problem has been persisting for long. But actions to help overcome the same are not still visible, at least to the extent that can give some credible signals to the investors, actual and potential, about easing the related supply-side constraints sooner than later.
And beyond power and gas supplies, there are other infrastructural constraints, too. These relate to roads, ports, drinking water, urban transportation, traffic jam etc. Such constraints add to the cost of doing business. The attractive incentive package does not make operational sense to the investors under such circumstances. Investors are rather distracted from an economy where long-lingering infrastructural constraints remain a cause for concern over its competitiveness in a global context. Cheap labour in Bangladesh is an attraction for investors but this advantage by itself is not enough to crowd in investments.
Economic governance in Bangladesh needs a lot to be done for improvement, befitting the priorities of a country that aspires to join the rank of the middle income economies within the next 10 to 12 years. Accelerated growth with investment playing the role of a catalyst is well-nigh impossible to achieve, without raising the quality and speed of governance. Indeed, Bangladesh must overcome, among other obstacles, the systemic weaknesses of governmental decision-making for seizing the opportunities to achieve economic growth at the rate of 8.0%-10% a year.
For an elected government that enjoys a massive people's mandate, this is, indeed, a unique opportunity to deliver. Its hard actions to transform the economy and the society can have a profound impact on efforts to reduce poverty. Costs of inaction will be too heavy. Government's regulations have to be simplified and made investment-friendly. In Bangladesh, all of us know that the regulatory regime is overextended, in too many areas. And regulations, where these are of critical importance, are found to suffer, too badly, from lax enforcement for reasons that are not unknown to the economic operators. In this situation, the 'compliant' ones have to pay a premium while the 'non-compliant' majority "manage" to flout the rules and regulations, making a mockery of the latter. The rule of law can hardly be ensured under such circumstances. And who does not know that the rule of law, along with guaranteed property rights, is sine qua non for attracting investment on a sustained basis?
Information, not connection, should critically matter for decision-making in areas of investment. The cases of slow, non-transparent particularistic decisions, influenced by what Indonesians call KNN or CCN -- corruption, collusion and nepotism -- serve here as sordid reminders of disorder. These are the outcomes of malfunctional, if not dysfunctional, "information order" or of a situation where "information" is relegated to the background and "connection" (kleptocracy) is brought to the fore, or of a combination of both. Free flow of information can be one of the answers to such a CCN-syndrome.
Bangladesh has otherwise a unique opportunity, in the global economy now in its post-crisis phase, particularly in its today's vastly changed regional and international contexts, for unlocking its investment potential to reach a higher growth trajectory. For this to take place, it needs to take, sooner than later, a synergy of actions aiming at improving economic governance, addressing infrastructural problems, raising the quality of human resources and, thus, alleviating poverty on a sustainable footing. All these are easier said than done. Changing the system is hard. But not changing it would mean the loss of opportunities, entailing serious costs, for the present, and undeniably much more for the future.
Attracting investment is Bangladesh's major economic challenge today. This is an opportune moment for Bangladesh to take effective actions for investment promotion. Two global rating agencies have made a positive assessment of the country's overall economic situation. At this stage, it is important to make the best use of the opportunities awaiting Bangladesh for its accelerated growth. A synergy of actions will be needed to facilitate increased private investment, both local and foreign. And investment does undeniably hold the key to sustained growth at an accelerated pace, higher incomes, increased employment opportunities and, thus, poverty alleviation.
In this context, the policy-makers should take a hard look, objectively and dispassionately, at the constraints to making investments, particularly in main sectors of the Bangladesh economy. Its capital-market and the property market are otherwise heated up; the banks are flush with funds. These developments indicate that the dearth of investible funds for setting up, at least, small and medium ventures is not a severe problem now as it was before. What matters most for facilitating investments in such areas is setting the basics right through appropriate and timely policy actions. Meanwhile, it is also time for Bangladesh to make the best use of the opportunities particularly for attracting foreign direct investment, in the light of the new global realities. But such opportunities can be seized only if there is a synergy of actions to address the challenges that Bangladesh faces. The opportunities are, no doubt, immense. But the challenges are equally formidable.
We all know where such challenges lie. Infrastructural constraints come here on the top of all. Inadequacies of power and gas supplies are hurting the economy most. In a situation where the existing economic operators find it difficult to run their enterprises at capacity, it would be a pious wish to expect new investors to put in their funds in new ventures. This particular problem has been persisting for long. But actions to help overcome the same are not still visible, at least to the extent that can give some credible signals to the investors, actual and potential, about easing the related supply-side constraints sooner than later.
And beyond power and gas supplies, there are other infrastructural constraints, too. These relate to roads, ports, drinking water, urban transportation, traffic jam etc. Such constraints add to the cost of doing business. The attractive incentive package does not make operational sense to the investors under such circumstances. Investors are rather distracted from an economy where long-lingering infrastructural constraints remain a cause for concern over its competitiveness in a global context. Cheap labour in Bangladesh is an attraction for investors but this advantage by itself is not enough to crowd in investments.
Economic governance in Bangladesh needs a lot to be done for improvement, befitting the priorities of a country that aspires to join the rank of the middle income economies within the next 10 to 12 years. Accelerated growth with investment playing the role of a catalyst is well-nigh impossible to achieve, without raising the quality and speed of governance. Indeed, Bangladesh must overcome, among other obstacles, the systemic weaknesses of governmental decision-making for seizing the opportunities to achieve economic growth at the rate of 8.0%-10% a year.
For an elected government that enjoys a massive people's mandate, this is, indeed, a unique opportunity to deliver. Its hard actions to transform the economy and the society can have a profound impact on efforts to reduce poverty. Costs of inaction will be too heavy. Government's regulations have to be simplified and made investment-friendly. In Bangladesh, all of us know that the regulatory regime is overextended, in too many areas. And regulations, where these are of critical importance, are found to suffer, too badly, from lax enforcement for reasons that are not unknown to the economic operators. In this situation, the 'compliant' ones have to pay a premium while the 'non-compliant' majority "manage" to flout the rules and regulations, making a mockery of the latter. The rule of law can hardly be ensured under such circumstances. And who does not know that the rule of law, along with guaranteed property rights, is sine qua non for attracting investment on a sustained basis?
Information, not connection, should critically matter for decision-making in areas of investment. The cases of slow, non-transparent particularistic decisions, influenced by what Indonesians call KNN or CCN -- corruption, collusion and nepotism -- serve here as sordid reminders of disorder. These are the outcomes of malfunctional, if not dysfunctional, "information order" or of a situation where "information" is relegated to the background and "connection" (kleptocracy) is brought to the fore, or of a combination of both. Free flow of information can be one of the answers to such a CCN-syndrome.
Bangladesh has otherwise a unique opportunity, in the global economy now in its post-crisis phase, particularly in its today's vastly changed regional and international contexts, for unlocking its investment potential to reach a higher growth trajectory. For this to take place, it needs to take, sooner than later, a synergy of actions aiming at improving economic governance, addressing infrastructural problems, raising the quality of human resources and, thus, alleviating poverty on a sustainable footing. All these are easier said than done. Changing the system is hard. But not changing it would mean the loss of opportunities, entailing serious costs, for the present, and undeniably much more for the future.